NEW DELHI: The Delhi High Court on Wednesday observed that there has been "a prima facie violation" of foreign investmentregulations by ecommerce companies while sending notice to the central government on a petition filed by footwear retailers.

A high court bench told the government to reply to its notice within two weeks. The next hearing on the matter is scheduled on October 14.

All India Footwear Manufacturers & Retailers Association had filed a petition in the high court last month, alleging violation of foreign direct investment (FDI) norms by online marketplaces such as Flipkart and Amazon, which have attracted billions of dollars in overseas funding.

"Today, the Delhi High Court has found prima facie evidence of violation of FDI regulations by ecommerce companies and has sent a notice to the Government of India to file a reply in the next two weeks," said lawyer Rishi Agrawala who is representing the footwear association in the case.

Senior advocate AM Singhvi, who appeared for the association before the court, argued that ecommerce marketplaces are retailers because they accept payments, make deliveries, take returns, and make refunds. "Merely there being a physical retailer behind the transaction does not convert the transaction into a B2C model having no ecommerce element," he told the court.

India does not allow FDI in business-to consumer ecommerce but allows 100 per cent FDI in business-to-business segment. Ecommerce players such as Snapdeal, Flipkart and Amazon have adopted a marketplace model whereby they provide a platform for retailers and distributors to sell products to customers.

On a query made by the bench on how tax authorities look at ecommerce transactions, Singhvi said various state governments have treated these transactions by ecommerce marketplaces as sales and have accordingly issued demand notices, which have been challenged before various forums.

He also put across the example of a United States Supreme Court ruling that ecommerce transactions are retail sales and accordingly taxable at the state level. After hearing Singhvi’s arguments, Justice Rajiv Sahai Endlaw observed that there is "a prima facie violation" of FDI norms.

A Flipkart spokesperson declined to comment on the development. "The matter is between Union of India and the plaintiff. We have no specific comments on the case. We are a technology company, which operates a marketplace in compliance with the laws of the land," a Snapdeal spokesperson said.

Responding to the court’s decision to send notice to the government, Rafique Malik, chairman of All India Footwear Manufacturers & Retailers Association and chairman of Metro Shoes, said, "The court has used the same common sense that ecommerce is nothing but retail and there are evidences of this available to everyone."

Over the past few years, brick-and mortar retailers have been demanding a level-playing field with ecommerce rivals, which have been wooing away Indian consumers with heavy discounts, by creating a simple FDI policy without segregation by brands and channels.

In May, Retailers Association of India, which represents top retailers such as Future Group, Shoppers Stop and Reliance Retail, had dragged the central government to court, accusing ecommerce companies of "circumventing" FDI laws by calling themselves marketplaces.

On Tuesday, ET had reported that the brick-and-mortar retailers are preparing to approach the Delhi High Court once again after failing to get a response from the government over the FDI issue.

Last month, the Kerala High Court had admitted a petition from the Mobile Retailers Association that accused ecommerce firms, including Amazon, Flipkart, and Snapdeal, of FDI violations, alleging that ecommerce companies enter into exclusive bulk deals with manufacturers to sell their mobile phones and such strategies would "wipe out" traditional sellers and result in lakhs of job losses.

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